Weekly Options Strategy: As Nifty50 looks to consolidate, go for Bear Put spread


Strategy Positions:

Buy Nifty August 17700 Put at 115 & sell August 17500 Put at 58, Total premium out-flow: 57; Target: 143; Stop loss: 12.5 (1 Lot Each).

Rationale

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The Nifty closed marginally green last week despite profit taking seen on Friday amid continued FIIs inflows. Call writers remained under pressure throughout the week as Put base continue to strengthen. Broader markets also performed in line with headline indices as both small cap and midcap indices saw gains of 1% each. Going ahead, while data points remained positive, a round of consolidation can be expected near psychological levels of 18000 for Nifty and focus may shift towards midcap and small cap indices.

Nifty futures open interest increased sharply over last week and current OI is the highest seen over in a month. While FIIs have liquidated some longs, retail participants increased their long positions. We believe, strong hands have booked some profits after a strong move seen during the series in the anticipation of some consolidation.

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From the options space, significant Call writing can be seen at ATM strikes with total open interest of more than 1 cr shares at both 17900 and 18000 Call strikes. For the first time during the series, we are witnessing higher Call writing than the Put bases. Hence one can expect some consolidation below 18000 during settlement and fresh up leg might be seen only if Nifty moves above these levels.

India VIX has remained sideways and consolidated near 18 levels throughout the week. With result season almost over, stock specific activities likely to remain in focus amid consolidation. We believe that any profit booking should be limited till 17500 levels in the settlement week.

Pay-Off Diagram:

Payoff diagram-August21

(The Author, Raj Deepak Singh, is Analyst – F&O, ICICIdirect)



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